Merchants can relate to finding chargebacks incredibly annoying. It can drain your profits in a snap, take up your team's time, and even put your business at risk. If the amount of chargebacks keeps increasing, then banks and card networks will eventually intervene. And by the time they do, they'll be expecting a chargeback reduction plan onhand.
While having a chargeback reduction plan sounds like a good idea, it's actually a requirement if your chargeback rate gets too high. Not having a strong plan can put you at risk of frozen funds, a shut-down account, or something much worse.
Here’s what a chargeback reduction plan is, why banks demand it, and how to create one that actually works.
What is a Chargeback Reduction Plan?
A chargeback reduction plan, or chargeback mitigation plan, is a formal document that discusses how your business will lower its chargeback ratio. Banks or credit card companies usually request it when disputes start to pile up and put your account at risk.
They're not looking for a quick fix. The plan should clarify the cause behind these disputes and concrete steps you'll take to eradicate the issue. This could include the following:
- Fixing unclear product descriptions
- Improving customer support
- Updating billing descriptors
- Using fraud detection tools
- Responding to disputes more effectively
If most chargebacks are for “item not received,” the issue may be in your shipping process. If they’re fraud-related, you may want to tighten your filters.
Banks and card networks want reassurance that you’re taking action. If disputes continue, they carry the risk—not just you. A solid chargeback mitigation plan helps protect your payment processor, reputation, and revenue.
Even though it might seem like a punishment, creating a chargeback reduction plan is actually a smart move. It forces you to take a closer look at your processes and fix the issues causing chargebacks in the first place. Over time, this can lead to better customer satisfaction, fewer disputes, and higher revenue.
If the plan works, you stay in business, keep your processing rights, and protect your reputation. If it doesn’t, the consequences can be much more severe: long-term damage to your business.
The Important Elements of a Chargeback Reduction Plan
If your chargeback ratio is climbing and your payment processor is putting pressure on you to fix it, a solid chargeback reduction plan can make all the difference. It shows you’re serious about lowering disputes, blocking fraudulent transactions, and keeping your business in good standing.
Every chargeback situation is different, but there are a few things every plan should include. Here’s what should be included in your plan.
Business Overview
Start by explaining what your business does. This helps banks and card networks get a better sense of your operations. Include things like your products or services, sales channels (like online, phone, or retail), billing methods, and how you market to customers.
For example, a subscription box company that bills monthly will face different risks than a one-time purchase retailer. These details matter when it comes to figuring out what’s driving chargebacks.
Policies and Procedures
Your policies can either protect you or work against you. This section should include your return and refund policies, how terms and conditions are communicated, and what your team does to resolve customer complaints.
For example, if your return policy is too strict or hard to find, that could be pushing customers straight to chargebacks. If there’s no clear process for refunds, that might also be part of the issue.
Chargeback Description
Banks will expect you to explain the chargebacks you've received, but not just by quoting reason codes. You’ll need to dig deeper. What’s really going on?
Maybe you’re seeing a spike in friendly fraud or a wave of fraudulent chargebacks from customers claiming items never arrived. Maybe poor communication is leading to confusion about recurring billing. This section should explain what patterns you’ve identified and what’s causing the disputes.
Prevention and Risk Management Strategy
This is the most important part of the entire plan. It needs to show exactly how you’ll stop future chargebacks and deal with fraudulent transactions before they hit your account.
For example:
- Update product descriptions so customers know exactly what they’re buying
- Improve fraud filters to catch bad actors
- Use real-time tracking and delivery confirmations
- Respond faster to disputes to win more cases
- Make billing descriptors easier to recognize
The plan should make it clear that you're not guessing—you’re using real tools and making changes that matter.
Execution Plan
Now that you've outlined what you'll do, this section should show how you'll do it. That includes when each step will be rolled out, who’s responsible, and what you expect to see in terms of results.
You should also include backup steps in case the first approach doesn’t deliver. Maybe that means switching fraud tools or adding customer service staff during busy seasons.
A thoughtful plan shows your payment processor that you’re being proactive, not just reacting. That can go a long way in keeping your account open and your business moving forward.
When is a Chargeback Reduction Plan Needed?
Merchants, especially those with card-not-present transactions, need a way to handle chargebacks and reduce fraud. A chargeback reduction plan is usually required when your chargeback ratio gets too high, triggering a formal request from your bank or card network.
Your chargeback ratio is the percentage of disputes compared to your total transactions. Payment processors and card brands monitor this closely. If your ratio rises, you may be placed in a chargeback monitoring program like Visa’s or Mastercard’s, which have tiers that may require submitting a reduction plan.
These programs are designed to help you reduce claims and avoid harsher consequences. Ignoring the issue could lead to being added to the MATCH list or losing your processing rights. A chargeback reduction plan is your chance to address the problem and protect your business before things escalate.
How Do You Create a Chargeback Reduction Plan?
Creating a chargeback reduction plan depends on understanding why chargebacks occur in the first place. The cause of your chargebacks will guide the steps you need to take.
A common denominator among merchants is that chargebacks happen because of small issues in business policies or procedures. If this is the case for you, your plan should focus on fixing those areas. For example, you might need to update product descriptions, clarify your return policy, or ensure that your billing descriptors are recognizable to avoid confusion.
If the main issue is related to fraud, you’ll need a different approach. Strengthening your fraud prevention measures, such as using fraud detection tools and tightening customer verification, can help prevent fraudulent transactions from happening in the first place.
Dealing with friendly fraud (first-person fraud) is trickier. This occurs when customers file disputes after receiving the product or service. It’s harder to prevent because there’s no clear red flag before the transaction. In these cases, representment can help, but it’s a slower process and may not immediately reduce chargebacks. It’s important to recognize that this type of chargeback may take more time and effort to be able to mitigate.
Here are some key questions to keep in mind:
- What products or services do you offer?
- How do you promote your products or services?
- Where do you sell them (e-commerce, physical stores, etc.)?
- What billing model do you follow?
- Do you operate under one specific business name?
- How do your prices compare to competitors in the market?
- What do you think is causing your chargeback issues?
- What fraud detection and chargeback management tools are you currently using?
- Are there any additional tools or processes you plan to implement to help reduce chargebacks?
- How will you track your progress as you work on lowering chargeback rates?
Along with your plan, you’ll need to provide some important documentation, including:
- Proof that your business name is being used consistently
- A copy of your cancellation and/or return policy
- A copy of your terms and conditions
- Samples of form emails sent to customers
- Any supporting documentation related to the causes of disputes
Final Thoughts
To wrap things up, having a clear chargeback reduction plan is crucial for protecting your business and keeping your profits in check. Addressing the root causes of chargebacks, improving your policies, and using fraud prevention tools can help you avoid chargeback monitoring programs and minimize potential losses.
However, we understand that managing chargebacks on your own can be overwhelming. A lot of merchants struggle to stay ahead of the issue, which leads to more disputes and lost revenue.
That’s where the experts at Chargeblast come in. We can help you detect friendly fraud, reduce risk, and maintain a low chargeback rate with a strategy tailored to your specific needs. If you’re ready to take control of your chargeback management, reach out to us today.
